One of the intentions of the Holidays Act 2003 is to make it easier to calculate employeesí holiday pay. Holiday pay is not just an employeeís pay while on annual leave ñ it can mean several different things. It is therefore important to understand what it is and how to correctly calculate holiday pay under the Holidays Act 2003.

Holiday pay is a term used by the Holidays Act 2003 to mean different things:

The minimum rate for holiday pay on termination or closedown within a year of employment will increase to 8% from 1 April 2007. This is because the minimum annual leave entitlement will be increasing to 4 weeks.

Holiday pay for an employee who is on annual leave must be the greater of their:

ëOrdinary weekly payí is what the employee receives for an ordinary working week.

Ordinary weekly pay:

If itís not possible to determine an employeeís ordinary weekly pay, the pay must be calculated by using the following formula:

c

where:

ëaí is the employeeís gross earnings for:

ëbí is the total amount of productivity or incentive-based payments, plus payments for overtime that are not a regular part of the employeeís pay, plus any one-off or exceptional payments.

ëcí is 4.

For example, a salespersonís gross earnings for 4 weeks was $3,800. This included $1,200 for commission made on sales and $200 for extra hours worked while attending an exhibition.

Their ordinary weekly pay for the period is therefore:

3800 ñ 1400 = $600

where:

ëaí is their gross earnings, ie $3,800.

ëbí is commission plus non-regular overtime, ie $1,200 + $200.

ëcí is 4 calendar weeks.

ëAverage weekly earningsí are the employeeís gross earnings for the previous 12 months, divided by 52.

Gross earnings include paid leave, certain allowances, overtime, productivity, and incentive payments, such as commission, first-week compensation for a work-related injury, and the cash value of board or lodgings provided as part of the employeeís ëpackageí.

It does not include payments not covered by the employment agreement, such as discretionary payments, weekly compensation from ACC, and reimbursement payments or allowances for work-related expenses, such as business trips, meal and tool allowances, etc.

Employees are entitled to be paid holiday pay before starting a period of annual leave, unless:

For employees that are paid weekly, this usually poses no problems. However, the same rule applies to employees who have their wages direct credited each month. All employees are entitled to be paid before taking their annual leave.

Where there is a closedown over Christmas, wages are paid on the usual day for such payment and holiday pay is usually paid at the end of the last day at work before the closedown.

If the employeeís employment ends within 12 months of them starting work for you, i.e. before the employee qualifies for annual leave, you must add 6% of their gross earnings to their final pay, minus:

For example, an employee took one weekís annual leave in advance in their first year of employment.

Their ordinary weekly pay was $500. At the start of a closedown, or if their employment ends, the following would apply if theyíve worked there for less than 12 months:

Employers can include holiday pay in ordinary pay (ëpay as you goí), but only in certain situations where:

For holiday pay to be paid in ordinary pay it must be:

ëPay as you goí holiday pay can only be used if itís genuinely not possible to predict the pattern of employment, such as employees ëon callí to cover for sick employees.

If ëpay as you goí holiday pay is used incorrectly, and employment lasts longer than 12 months, the employee becomes entitled to 3 weeksí paid annual leave, even though they received holiday pay during their first year ñ in other words, they get paid twice for annual leave ëearnedí in their first year.

Employees are entitled to their ërelevant daily payí for a public holiday, or for an alternative holiday they ëearnedí by working on a public holiday. Further information on relevant daily pay is provided in a separate fact sheet ñ contact us.

Note that the law can and does change quickly. The latest on holidays legislation can be found on www.ers.govt.nz.

Important: This is not advice. Clients should not act solely on the basis of the material contained in this fact sheet Items herein are general comments only and do not constitute or convey advice per se. Changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. We believe the contents to be true and accurate as at the date of writing but can give no assurances or warranty regarding the accuracy, currency or applicability of any of the contents. This fact sheet is made available to our clients as a helpful guide for their private information. Therefore it should be regarded as confidential and should not be made available to any person without our prior approval.

Copyright: No unauthorised copying permitted

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Last updated August 2004